Misys: “Banks feeling the pressure from alternative lenders”

Traditional operators feeling the heat from new-style firms spawned by digital revolution

Supplier finance networks and alternative lenders are posing a “significant threat” to traditional banks’ commercial lending activities, according to findings from leading financial software provider Misys.

Spurred by a wave of intense innovation in financial technology – or ‘fintech’ – a host of digitally enabled alternative financiers, peer-to-peer lenders and supplier networks have stormed into the market.

As a result, banks are beginning to re-evaluate their operating models and embrace new technology, more agile approaches and – perhaps most importantly – partnerships with innovative firms, to sustain momentum in their lending and trade finance work.

In its research – compiled from interviews with 114 executives at 77 banks across the UK, Europe, the Middle East and Asia-Pacific – Misys found that:

  • 61% of respondents already feel competitive pressure in supply chain finance product lines, such as receivables finance and factoring
  • 68% consider small business lending as “under high threat”
  • 75% fear loss of market share to alternative lenders
  • 84% regard pressure on the pricing of loan products as a challenge

According to a 2014 report from Grant Thornton, 60% of mid-market businesses were at that point already, using non-bank lending as a source of finance – showing that it is no longer a fringe activity, but one that corporates widely consider normal.

However, even in light of those challenges, Misys’ research showed that banks also believe that strategic partnerships with non-bank players could prove to be a strong driver for their trade finance businesses, with 68% citing such tie-ups as a major opportunity.

Misys head of trade finance David Hennah said: “The banking sector understands that it must now react to remain at the centre of corporate credit requirements.

“Our survey respondents believe they can leverage emerging supplier networks, and the financial technology vendors that can provide digital enablement and connectivity across trade and lending, to grow and retain clients.”

Hennah added: “We have seen an increasing focus on strategic technology partnerships. Clients want to build trade and lending platforms that help overcome their technical debt in digitally enabled corporate banking, and build a foundation to dictate future innovation.”

David Gustin, editor of specialist website Trade Financing Matters, said: “The threat from non-banks on traditional banking models is clear and present, and this has grown largely from the technological innovation in this space.

“The challenge is that lenders don’t know what they don’t know – meaning many clients will access alternative forms of finance without their knowledge. In order to compete, banks need to replace outdated delivery models and put customer interests at the core of their business strategy.”

Gustin stressed: “Innovation is outpacing the limitations of legacy bank frameworks. By thinking differently and embracing change, banks – in partnership with their vendors – can define new value propositions along clients’ financial supply chains.”

A recent Misys white paper on the emergence of new-style lenders can be found here.

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